Could This Be the Biggest Blow Yet to Uber’s Business Model?

Taxi drivers in the sharing economy are fighting to make inroads against labor exploitation.

June 26, 2015

Ready to fight back?

Sign up for Take Action Now and get three actions in your inbox every week.

You will receive occasional promotional offers for programs that support The Nation’s journalism. You can read our Privacy Policy here.

Thank you for signing up. For more from The Nation, check out our latest issue.

Subscribe now for as little as $2 a month!

Support Progressive Journalism

The Nation is reader supported: Chip in $10 or more to help us continue to write about the issues that matter.

Fight Back!

Sign up for Take Action Now and we’ll send you three meaningful actions you can take each week.

You will receive occasional promotional offers for programs that support The Nation’s journalism. You can read our Privacy Policy here.

Thank you for signing up. For more from The Nation, check out our latest issue.

Travel With The Nation

Be the first to hear about Nation Travels destinations, and explore the world with kindred spirits.

Sign up for our Wine Club today.

Did you know you can support The Nation by drinking wine?

The sharing economy has been having a rough ride lately: Enraged taxi drivers rose up against Uber with flaming street blockades in Paris and San Francisco cabbies rallied at Uber headquarters to protest the “ride-share” platform’s outsized grip on local taxi markets. But another potentially more disruptive development unfolded more quietly, in a San Francisco courtroom, with the simple words “alleged employee.” According to a California Superior Court filing last week (h/t Julia Carrie Wong at SF Weekly), the California Labor Commissioner’s Office decided Uber isn’t just a miracle of digital innovation in the public service: The app is actually a boss. In response to a complaint over disputed compensation, the commission determined that Uber’s relationship to the driver was not one between a consumer and a gig-enabling platform, or a company and an independent contractor, but, rather, employer and employee, based on the fact that the driving was integral to Uber’s business model, and Uber’s function was vital to the driver’s work.

Plaintiff’s work was integral to Defendants’ business. Defendants are in business to provide transportation services to passengers. Plaintiff did the actual transporting of those passengers. Without drivers such as Plaintiff, Defendant’s business would not exist.

The driver Barbara Ann Berwick wasn’t demanding much, winning about $4,150 in reimbursement for driving-related costs incurred during months of Uber service last year. Although the ruling, first issued on June 3 and subsequently appealed by the company, is limited, applying only to one case, it adds to a mounting stack of litigation against the company alleging exploitation of drivers as “independent contractors.” The legal pressure could lead to a shift in the $40 billion rideshare brand’s independent contractor–based business model, which has enabled it to avoid standard labor costs such as overtime pay, unemployment insurance, and Social Security.

According to Uber, that’s just part of the convenience: Users can instantly request rides and pay seamlessly via smartphone. But as the brand spreads worldwide, Uber not only grabs control over local consumer markets for ride services but upends an entrenched industry hierarchy. And though it’s true that many regular cabbies are legally categorized with the same dubious independent contractor designation, Uber’s monopolistic and ubiquitous software has opened new avenues of exploitation.

Against Uber management’s argument that the app was just a neutral service provider, the commission considered factors like the length and permanence of the service relationship and level of skill or supervision involved. Overall, the commission found, Uber could not treat drivers simply as users when they actually produced integral business value, through labor that Uber leverages by, for example, screening prospective drivers, controlling intellectual property use, and setting technical standards for vehicles. More importantly, the company tightly controls driver’s schedules and income. When a ride requester is a no-show or ditches the ride early, drivers aren’t guaranteed a cancellation fee, but Uber still reaps tidy profits.

Sarah Leberstein, staff attorney with the National Employment Law Project, says the recent legal and media scrutiny of the global brand reveals that “Uber is…deriving their profits by maintaining this ongoing relationship with this fleet of drivers over whom they have many controls. They’re essentially determining how much the drivers are making because they’re setting the fares and determining what share that drivers get.”

Uber didn’t invent the much-maligned 1099-er model. Employee misclassification is common in many service industries, especially among marginalized transportation workers (see the recent strike over misclassification and alleged wage theft led by California’s port truck drivers). But whenever Uber enters a city, drivers are pinned to a system where fares and job availability fluctuate wildly, thanks to volatile “surge pricing” (pegged to market demand) and live monitoring of a performance ratings (which can get a worker kicked off if consumer grades fall too low).

Uber’s “unfair advantage,” Leberstein adds, hits both regular cabbies and Uber drivers “not only because it’s saving on labor costs,” but also, in places like San Francisco, is “able to resist many of the market regulations that apply to its more traditional competitors.” Though this “flexible” market control “is generally a much cheaper way of doing business for Uber…it has enormous costs for the workers.”

Ayadi Green, a veteran cabbie and activist with the San Francisco Taxi Workers Alliance, says that because Uber is feeding a flood of its cars into local streets, “They’re hurting the environment, the economy, the industry, and people in San Francisco especially…because they create traffic.” With Uber’s unbridled open market system, “There are people that come from all over because they say they make good money here. The other side of the story is that they’re harming everybody.”

And Uber harms its own drivers, too, the commission concluded. Berwick was not an “independent” operator but extremely dependent on Uber, because “By obtaining the clients in need of the service and providing the workers to conduct it, [Uber] retained all necessary control over the operation as a whole.” The commission drew an analogy to the legal relationship between a pizzeria and the delivery worker, who might pay for gas, but at the end of the day is still driving pizza for his boss.

Uber’s flouting of local regulation may bring incalculable social costs. Taxi historian Graham Hodges explained to Time that although traditional New York cabs are associated with a feudal-type medallion system, which also imposes draconian costs on struggling drivers, the quasi-private system has historically benefited from government oversight, which catered to NYC cabbie turf. Like a public utility, drivers abided by a state-sanctioned vetting process, stable prices, and regular vehicle maintenance. Workers got steady income and manageable schedules, and more profoundly, a certain culture: cabbies “dedicated their lives to the job and owned their taxis. They had a vested interest in a clean, well-managed auto that lasted a long time.”

Today driver exploitation is rife even among yellow cabs. But the introduction of “on-demand” services like Uber and Lyft has accelerated the evaporation of those intangible legacy perks, as push-button convenience is prioritized over labor protection.

As the sharing economy’s wunderkind, Uber’s “disruption” simply reinvents old ways of eroding workers’ rights; their real innovation is simply building a higher platform for free markets to push drivers over the edge.